Unexpected Bump in House-Buying Power Lifts Market Potential, According to First American Potential Home Sales Model

First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released First American’s proprietary Potential Home Sales Model for the month of August 2021.

August 2021 Potential Home Sales

• Potential existing-home sales increased to a 6.40 million seasonally adjusted annualized rate (SAAR), a 0.05 percent month-over-month increase.
• This represents an 83.5 percent increase from the market potential low point reached in February 1993.
• The market potential for existing-home sales increased 9.9 percent compared with a year ago, a gain of 575,700 (SAAR) sales.
• Currently, potential existing-home sales is 392,200 (SAAR), or 5.8 percent below the pre-recession peak of market potential, which occurred in April 2006.

Market Performance Gap

• The market for existing-home sales outperformed its potential by 6.4 percent or an estimated 407,600 (SAAR) sales.
• The market performance gap increased by an estimated 92,500 (SAAR) sales between July 2021 and August 2021.

Chief Economist Analysis: Housing Market Potential Up Nearly 10 Percent Year Over Year

“Housing market potential continued to strengthen in August, according to our Potential Home Sales Model, increasing 0.05 percent compared with July,” said Mark Fleming, chief economist at First American. “The market potential for existing-home sales is now nearly 10 percent higher than in August of 2020, when the housing market’s summer rebound was ramping up following the initial pandemic-driven decline in the spring.

“This past year has shown us that the economy follows the path of COVID-19, and that was evident in August’s labor market data. The labor market recovery stalled, as the resurgent pandemic discouraged workers from re-entering the labor force,” said Fleming. “Additionally, consumer confidence fell to a six-month low as worries about rising COVID-19 infection rates weighed on consumers’ outlook for the economy. But is increased economic uncertainty bad news for housing market potential? Not necessarily.”

Uncertainty Boosts House-Buying Power

“In August, house-buying power increased 0.9 percent compared with July due to a 0.03 percentage point decrease in the 30-year, fixed mortgage rate and a 0.5 percent increase in median household income. Lower than anticipated labor force participation, combined with increased demand for labor, is increasing the pace of wage growth,” said Fleming. “The month-over-month jump in household income contributed to a $2,800 increase in house-buying power. Additionally, the decline in mortgage rates contributed to a $1,700 increase in house-buying power in August. The total $4,500 increase in house-buying power boosted market potential by approximately 19,000 potential home sales.